Good morning. And welcome to the Markel Corporation First Quarter 2023 Conference Call. All participants will be in listen-only mode [Operator Instructions]. During the call today, we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They are based on current assumptions and opinions concerning a variety of known and unknown risks. Actual results may differ materially from those contained in or suggested by such forward-looking statements. Additional information about factors that could cause actual results to differ materially from those projected in the forward-looking statements is included in our most recent annual report on Form 10-K and quarterly report on Form 10-Q, including under the caption Safe Harbor and Cautionary Statement and Risk Factors. We’ll also discuss certain non-GAAP financial measures during the call today. You may find the most directly comparable GAAP measures and a reconciliation to GAAP for these measures in our most recent Form 10-Q. Our Form 10-K and Form 10-Q can be found on our Web site at www.markel.com in the For Investors section. Please note this event is being recorded. I would now like to turn the conference over to Tom Gayner, Chief Executive Officer. Please go ahead.

Good morning. Thank you, Chauntelle. And welcome to the first quarter Markel conference call. This is indeed Tom Gayner, your CEO and I'm joined today by my new colleague, Teri Gendron, who started as our CFO in mid March. I'll remind you that means she was here for all of two weeks of our first quarter. Given that tenure, we will probably ask her all of the really hard questions. Additionally, Jeremy Noble, President of our insurance operations is also on the call with us today. As always, we remind you that at Markel we focus on the long term. We have been in business since 1930, through three generations of the Markel family and have been public since 1986. Every action we take remains focused on the long term success of Markel. All of us are committed to building one of the world's great companies. We define a great company as one driven by win, win, win architecture. We do our best to make sure that our customers win by doing business with us, that our associates win by being part of this organization, and that our shareholders win through high and durable returns on their capital. We are more oriented towards time frames of 90 years than the 90 days that make up quarter, but we do enjoy the process of sharing our quarterly reports card with you. You are the owners of this business and we appreciate the chance to discuss how things are going, what we are working on and any highlights or low-lights happening at your company. We look forward to your thoughtful questions on our circumstances. As to 2023, we have got good news to share with you. We are off to a good start. As David Letterman might say, compared to the negative…

Thank you, Tom, and good morning, everyone. I couldn't be happier to be part of the Markel team. It's been just a short while but I can already see the role the Markel culture plays in our long term success. Onto our first quarter results. As Tom remarked, 2023 is off to a good start, reflecting growth in meaningful contributions from each of our three engines. Starting off with our underwriting operations. Gross written premiums were $2.7 billion for the first quarter of 2023 compared to $2.5 billion in 2022, an increase of 6%. Our increased premium volume reflects new business volume and more favorable rates across many of the product lines within our insurance segment with the most notable growth coming from our personal lines, property and marine and energy product lines, while we saw lower premium volume within our professional liability product lines, where we are adjusting our writings in reaction to changes in market conditions and downward pressure on rates within certain classes. Retention of gross written premiums was 83% in 2023, which is down 3 points from the same period last year. The lower retention in 2023 compared to 2022 reflects higher session rates on our professional liability and personal lines product lines within the insurance segment and our marine and energy product lines within the Reinsurance segment, as well as changes in mix of business within the Reinsurance segment. Our consolidated combined ratio for the first quarter of 2023 was 94%. This compared to an 89% for the first quarter last year, which included $35 million or 2 points of net losses and loss adjustment expenses attributed to the Russia-Ukraine conflict. The increase in the consolidated combined ratio reflects a higher attritional loss ratio and the impact of less favorable development on prior accident year's…

Thanks, Teri. Great to have you here. And good morning, everyone. I'm pleased to be with you today to recap our 2023 first quarter insurance engine results. We are off to a nice start to the year with total revenues within the insurance engines that are passing $2 billion for the quarter, generating pretax operating income of $152 million and increasing float while we invested in increasingly attractive yields. Let me now share a few thoughts on our first quarter results from across our collection of insurance businesses, which include our insurance and reinsurance underwriting operations, State National Program Services operations and the fill insurance linked securities operations. Looking first at our insurance segment. For decades, we've said we will walk away from business that is not adequately priced and does not meet our profitability targets. The first quarter of this year is a good example of us displaying rate adequacy discipline. Top line gross written premium growth within our insurance segment came in at 8%. That being said, we actually grew nicely in a number of product areas where we have a high degree of confidence around margins. We took advantage of improved pricing environment in property and grew in areas such as inland marine, binding, personal lines and select London market Marine and Energy classes. However, we are not comfortable with the pricing trend in the professional liability space, particularly in much of the large account D&O space. As a result, we are shrinking, selectively allowing some business to lapse and being very discerning around new accounts. Another example is in excess casualty lines where we saw some contraction as the pace of new business slows a bit and we are pushing hard for rate and are willing to let existing business laps where we are able to…

Thank you, Jeremy. At Markel Ventures, we enjoyed a wonderful first quarter. As Teri reported, revenue grew to $1.1 billion, up from $950 million. That growth was almost entirely organic as there were no ventures acquisitions in 2022. EBITDA grew to $120 million, up from $96 million a year ago. It is indeed appropriate to remember that the D of EBITDA is a real cash expense. Capital expenditures in the first quarter, which you can find in the statement of cash flows in the financial statements and which lead to the accrual accounting calculation of D totaled $37 million for all of Markel in the first quarter. Most of that does relate to Markel Ventures, but I hope that calculation gives you some comfort that remain attentive to the ultimate free cash flows that the ventures businesses generate after all cash expenses. The management teams that run our ventures operations continue to demonstrate operational excellence, creativity, adaptability and discipline amidst an ongoing jumbled economic environment. Inflationary pressures are real and the economic fallout from higher interest rates as well as overall tightening credit condition makes the job of delivering those sorts of results harder and harder. I could not be more grateful and proud of the team for how they continue to manage through the daily challenges of running their businesses. As I mentioned earlier in the call, we are starting to have some early conversations with people looking to join the Markel Ventures family, and I would hope that some of them will come to fruition in the fullness of time. We will be thoughtful and disciplined stewards of your capital as we consider possibilities. In our investment operations, we reported recurring investment income of $159 million, up from $92 million a year ago. That reflects the higher interest…

[Operator Instructions] Our first question comes from Charles Goard with Truist.

Congratulations on the continued progress. I had a question about share repurchases. I know you have a program that automatically increases your appetite as the price is lower. Does that program eliminate all restrictions of the window being open or not open?

Well, you're correct that we try to do what we think is rational. So we make our own intrinsic calculation of what we think Markel is worth, and we make rational repurchase decisions based on that calculation and the other capital allocation opportunities that we look at. We have designed this to be able to try to be consistent in our ability to repurchase stock on a regular basis.

And the window question. Are you able to buy stock this morning?

The answer to that is yes.

Our next question comes from Mark Dwelle with RBC Capital Markets.

A couple of questions. First, I noticed that there was a notable reserve release related to the CATCo unit, I guess that ran through the other segment. I guess what I wanted to check is sort of an accounting question ultimately, is that amount that benefit that shows up in the other segment, is that ultimately then neutralized by a higher minority interest or minority interest charge down further in the financial statements?

That's right. So you may recall, we entered the settlement first quarter last year. And as part of that, we consolidate the Markel CATCo Re in the Markel's financial statement. So you just get noise above the line and below the line. So it shows up as you point out in the other operations and then it's eliminated below the line through noncontrolling interest change. So what that highlights is that the reserves continue to run off favorably and that inures to the benefit of the investors.

Just a side question on that, I think that was my main point was really just that it ultimately doesn't hit the run rate earnings. But to the extent that you have that favorable development this quarter. Was that the byproduct of a reserve analysis or review or was that some continued innovations as that book continues to run down?

Yes, it's more of the latter, Mark, just finalizing positions and commutation activity and just closing the deals out.

The second question that I had related to I guess, the accident year margins in the insurance segment. I mean I appreciate that you guys have always been very conservative, and I suspect that will probably ultimately be the answer to the question I'm going to ask. But I mean it doesn't seem consistent to me that you could have a pricing environment where you're saying pricing is running level with or better than loss trend and then you would need 300 basis points more of accident year margin related to a book of business that is reasonably homogenous with the book you wrote a year ago. Can you just comment on that thought and where I might be off on that?

Well, I think, Mark, you're right to kind of highlight that. So we clearly -- as we kind of spoke to throughout the course of last year, we were seeing confluence of that’s rising interest rates that were compounding, social inflation becoming more clear, the effects of the courts working through their taste backlogs, and we witnessed actual loss frequency and severity in excess of our expectations. So we took action and ultimately that resulted in some adverse development in the fourth quarter, which as Tom alluded to earlier, we detest that. So what we're highlighting is acting with caution, acting with prudence. And you're exactly right, we will have built in an additional margin of safety in our '23 accident year and how we opened the year up as we continue to look to gain more credibility around how the 2020 to 2022 years are performing. Now fortunately, 2019 and prior, so the pre-COVID softer market years where we had experienced in development, we had some -- we didn't experience meaningful loss reserve development. We were pretty neutral on those years in total. The trends continue to be somewhat positive with regards to actual loss experience compared to expected 2020 to 2022. And to your point, we're actually probably doing a little bit better right now on rate to start '23 than we anticipated and also contemplation of rate and exposure change acting as rate relative to trend. So what we're left with is being cautious, acknowledging it's one quarter, acknowledging it's the first quarter of the year, allowing a little bit more time to apply credibility to the trends that we've seen and just acknowledging that there's uncertainty around insurance market conditions at the time. But I do think that, that is a bit of an extra layer of margin of safety right now.

A question for you, Tom. I guess, within Markel Ventures, are you seeing any particular signs of the economic slowdown that CNBC tells me is occurring are all around me. Your 16% growth rate would suggest that's not so much the case, but it's obviously a very diverse book of businesses. So maybe some are doing superlative and some are kind of just chugging along…

I don't want to dwell on the answers here to try to make economic forecast. But it is palpable that you could just feel the credit conditions, which during the first quarter wasn't until after the close of the quarter, they had some of the bank value issues and some headlines about office buildings or the keys being turned in. And we see and feel that a bit, but it's not the sort of thing we have any control over. And I do want to reiterate, I think the people running those businesses are just doing a fantastic job. And the spread of businesses that we have it's going to provide a wide degree of exposure to just general economic conditions. I just wouldn't draw any too much in the way of conclusions.

So people are still buying a lot of house plants and stuff like that, right?

I know I feel better when I do. I was recommending the same for you.

Our next question comes from John Fox with Fenimore Management.

First question for Jeremy. Program Services, you mentioned one client leaving for whatever reason, and it was a very tough compare. Do you expect that to grow for calendar 2023.

I don't know that I want to be in the prediction game and grow quarter-over-quarter, grow in prior year comps. I'm not exactly sure even which one you'd be pointing to. Much of the activity that we would have anticipated with regards to changes in the programs was occurring over the back half of last year and into this year. But there still can be some changes in that space. As I think I commented on, fortunately, I think the new business pipeline is pretty strong. And to be honest with you, we were starting to see some -- we've commented before that there's rising levels of competition in a lot of new players and we're starting to see some cracks in some of that. So State National, I think, is very much a longstanding durable platform that has great relationships and is very good at dealing with larger and more complex deals. So that helps us get a lot of inbound calls and we feel pretty good about the new business pipeline, but I'm not going to predict where that will play out.

My second question for you, you know move on. When I think about the rhetoric in the industry, it's rate increases on top of rate increases and compounding for a number of years, more business moving to the E&S marketplace. And then as we've been through your gross written premium growth was 8%, which is the lowest in a while and your retention was a little bit lower than the previous year. And so on the one hand, the industry rhetoric is how great premium increases are and you're slowing down. So I know you've addressed this a couple of times, but any other reaction to that in my comment.

I think what we've been talking about for a period of time, John, is that it's a little bit more of a nuanced market. So there's a story within various product lines and that was a little bit of what I was trying to bring out in my earlier comments. You could take professional lines and we write a lot of professional liability. The lack of activity around specs and leasebacks and IPOs, I mean across the industry has reduced the total flow of business in that space above and beyond just what's happening in the pricing environment that makes us pull back a little bit, if you will. But then we see other pockets where we opportunistically believe we can grow, and we did grow in the first quarter, binding in inland marine and personal lines and London market marine and energy classes. So we'll see how that portfolio balances. But some of those pockets on the general liability and professional liability side are pretty big segments of our book where we're a little bit more focused on rate adequacy and we're going to push. And if we just don't get the rate that we believe is appropriate, we're willing to let some of that business lapse. So there's a bunch that's going into that story. But what I would say is I think that net-net, that leads to a more healthy and even potentially a more balanced portfolio.

And I mean, it was great to see reinsurance premium down and profits up. So that was a great job. And for Tom, I was wondering if you could just give us some more detail. You have about $2 billion of CMBS and you alluded to the problems in the market that we're all aware of. But could you talk about the CMBS, how much is government guaranteed, how much is private? And any other kind of details you can give us on the risk of that holding.

The vast majority of it is indeed agency and government guarantee sort of things. The business that would not be would tend to be stuff that we inherited through some of the acquisitions we've done over the years, and we sort of let that continue to diminish and run off, and we obviously scrutinize that and look at it. We have no concerns about any exposure to things that look vulnerable to us at this point.

And I just want to confirm, I mean, you don't disclose it, but you don't have any loan participations or financed any commercial office buildings or whole loans or anything like that.

No.

So it's all in liquid CMBS.

Correct.

Our next question comes from Bob Farnam with Janney.

My question is probably similar to ones you've already answered. But I just wanted to get your current thoughts on your 10-5-1 aspirational goals. In light of the underwriting discipline and the caution you're mentioning, the rate increase is slowing, the pulling back from certain lines and the over pressure on loss trends. It seems like, at least to me, you can either get the premium goal or the profitability goal, but probably not both. And I just wanted to know what your thoughts are on that.

So I think it's important to add some context to what we mean and what we've talked about with that vision around sort of 10-5-1, which is to say, back in 2019 when we sort of started to establish the idea, we really were talking about what would need to be true and what would we look like if we were to double the size of the company. Now numerically, that was an acknowledgment of $10 billion of premium by 2025. And because of our focus on profitability, we sort of established that $1 billion profit target. But what underpinned all of that was to say what needs to be true with regards to talent, to product, distribution, to territory, to region, to technology, to data, the digital capabilities, all of those sorts of things. So we continue to invest to make ourselves a bigger, more resilient, more durable, more longstanding insurance operation. So if we get to the end of 2025 and all those things I rattled off, we're doing really well out in line with what our expectations are and the premium is not at $10 billion, I'm not going to be terribly concerned because we acknowledge we have to operate through a market cycle. And as you hopefully would appreciate, for decades, we have spoken to the fact that we are about underwriting profitability. That's an incredibly important component part of how we contribute to the overall engines and dynamics of the Markel Corporation. So we're going to be focused on underwriting profitability and we can still achieve a lot of those objectives. We'll see on growth, that's about managing the market cycle. That being said, that breadth of product offering, the diversification we have, there are plenty of ways that we can grow across a very broad product set. So I think I still feel pretty good about mid and longer term profitable growth objectives. And we're not holding ourselves to a number.

No, I agree that you're aspirational. So I know this is not a set and start or anything like that. So yes, I was just curious to see if there were any updated thoughts. So thanks for the context.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the call back over to Tom Gayner for closing remarks.

Thank you so much for joining us. We would love to see you at our annual meeting in Richmond on May 17th at 2:00 p.m., at Robin Center at the University of Virginia. Between now and then, we'll see you soon. Thanks.

The conference call has now concluded. Thank you for attending today's participation. You may now disconnect.